Tuesday, January 17, 2023. How our fearless, intrepid investor made out last week and her plans for today

Yesterday, Monday, January 16, was a New York Stock Exchange holiday. Hence we are reporting on Tuesday this week.

In previous posts, we mentioned that our fearless, intrepid investor lost $US10,990.00 in her “fun” portfolio over one year by writing (selling) just out-of-the-money covered calls on Novavax (NVAX) on Mondays, expiry dates on Fridays of the same week. How much fun is that?

She ignored habit number three, which recommends that investors buy the American market and not pick individual stocks. Investors can buy the American market by acquiring an exchange-traded fund (ETF) that tracks the S&P 500.

There are more ETFs now than there are individual securities, but only half a dozen or so track the S&P 500.  SPY is the best. It is the largest, oldest, and most heavily traded US ETF. It has the narrowest bid/ask spread, one of investors’ expenses that most tend to ignore.

All risk in selling covered calls comes from the market movement of the underlying security. When she owned NVAX, it dropped to a greater, far greater, extent than the premium income derived from selling covered calls on the security. So, no more writing covered calls on individual securities for her.

Further,  she decided to write (sell) covered calls sufficiently out-of-the-money to earn about 1% per month or slightly more. That would significantly reduce the possibility of being assigned while yielding a decent return!